Economic Challenges of an Aging Population

IN 1993 THE ADMINISTRATION’S first job was to get the economy moving. The deficit reduction package enacted that year helped to reduce interest rates and restore business confidence. Since then the Federal deficit has been cut by more than half, and the economy has expanded robustly. The next task is to complete the work of deficit reduction. In 1995 and 1996 the Administration and the Congress both put forward plans to balance the Federal budget, but could not reach agreement at that time. The Administration is now submitting another proposal to balance the budget while protecting important national priorities. Legislation should be enacted this year to accomplish this goal. Balancing the budget in the medium term, however, is not the end of the story. The United States faces two important economic challenges now and after the turn of the century. First, without changes in current policy, as the baby-boom generation retires, entitlement spending, particularly for health care, will rise rapidly and budget deficits will increase. Second, the Nation needs to raise its overall rate of saving to improve long-term economic growth. These two issues are closely related. The President believes that action on these issues can come about only from a carefully considered, bipartisan process. This chapter discusses these challenges.